Episode Transcript
[00:00:03] Speaker A: You are listening to the Freight Buyers Club, a home for those interested in international trade, shipping, procurement, logistics and air freight. In fact, all things supply chain in the Americas, Asia and beyond. This podcast is brought to you by your host, Mike King, and produced in partnership with Demurco Express Group, a global 3 PL that specializes in managing logistics to, from and within the Asia Pacific region.
[00:00:30] Speaker B: As promised, I'm now joined by the Maritime professor herself, no less Lauren Began, maritime lawyer, former FMC insider and host of the excellent By Land and By Sea podcast. Welcome to the Freight Buyers Club. It's great to have you on.
[00:00:47] Speaker A: Thanks so much, Mike. It's so great to be here. I'm really looking forward to our conversation today.
[00:00:52] Speaker B: Me too. Me too. Okay, so you're the expert in all things shipping and legal in the U.S. now, listeners, before Lauren came on, I asked her to give me top five things to watch in 2025 from the point of view of what this new administration is up to and how it affects freight buyers. And I said, order them in terms of priority. Now, Lauren, at number one, you had the Federal Maritime Commission's powers and its new chairman. And just for context, under the Biden administration, the FMC under Daniel Maffei, who has been on this podcast and I've apologies, Daniel, I've kept calling you Mafi more than once. So Mafe, I've got it now. Please come back on. Don't be offended. Anyway, so the FMC under, under Mafe saw its powers and budget hugely scaled up in response to the higher shipping costs that impacted US shippers during the pandemic. Mafe remains a commissioner, but the new chairman is Louis E. Solar. So please tell us about Solar, Lauren. What are you expecting from him and what's going on at the fmc?
[00:01:57] Speaker A: So under the leadership of then chairman Dan Maffei, we really saw the FMC step into a more active role. We saw them really drawing some of those guardrails for the fmc. So in general, the fmc, I like to say, doesn't want to get into the business of very specific, detailed regulations, but they really want to kind of provide guardrails for the industry. Right. We went from a time where there was no guidance on a detention demurrage billing. Basically, you could have a bar Napkin that said $2,000 on it, slide it across the table and to five different people, and whoever paid it, paid it. Right? That's kind of the it was this wild west of detention to merge under chairman, then chairman Dan Maffei. We saw a little bit of the guardrails coming into that from there we also saw. And through Ocean Shipping Reform act of 2022, we saw the Congress start to get involved and really kind of hone in on the different authorities that the FMC should be entering into to help clean up or at least like I said again, those guardrails for the industry. The Interesting thing about OSRA 22 though was that when Congress told FMC to dive into detention demurrage, they were actually already looking at it. That was something that Chairman Dan Maffei had really identified was an important area for the FMC to provide those guardrails. So now we're switching over. We've gone from a Democrat president, so a Democrat administration, which also led to a Democrat leader of the FMC, to now a Republican administration, which now will have a Republican leader at the fmc, a Republican chairman. So that's Chairman Sola. So Sola is a. Or he's from Florida. He also lived in Panama for a bit. But I kind of see him as a. He's been focused on cruise, which is great. I think during. He led fact finding 30, which was during COVID 19, and he was reviewing Covid 19's impact on the cruise industry, which for your listeners you might be thinking cruise. What does the FMC have to do with cruising? They actually provide. They have a requirement for kind of bond and financial requirements associated with operating in the commercial space for cruising. But the other thing that I think Chairman Sola will be looking at through some of his messaging related to Investigations is the FMC's authority for Section 19 and Section 19 of the Merchant Marine act of 1920 and Foreign Shipping Practices act, which essentially gives the FMC the ability to take corrective action on unfavorable shipping conditions. This is a lesser known authority of the fmc, but it really gives them some important power. He weighed in on an investigation concerning Spanish ports. We saw that actually just this fall. He said he fully supported the investigation into the matter and what was happening. The allegations were that the Spanish ports were turning away or prohibiting entirely vessels carrying military materials bound for Israel from docking in Spanish ports. And so the allegation was that US flagged vessels were part of that turn away from the Spanish port. So we might see a rise of focus on taking those corrective actions for unfair shipping conditions.
[00:05:01] Speaker B: You mentioned OSRA 2022. That's the ocean Shipping Reform Act. This scaled up the size of the fmc. I'm not saying it's a big federal body by any means from anyone on the Outside looking into US Policy, we see all this about how you're going to scale back federal spending. Doesn't that mean that the FMC might be defunded or weakened in some way or. You don't seem to be looking at it that way.
[00:05:26] Speaker A: You know, potentially, we certainly have seen a lot of agencies finding themselves in a new predicament where they have to figure out kind of thing for their supper almost, so to speak. You know, the fmc, I think, serves a very purposeful and important role, but they've always operated on a very lean operation. Right. They only have about less than $40 million for their overall budget, which is a line item for most agencies. And they really operate with 120 to 130 employees. I mean, that's, that's a project, right? That's an interesting entire agency regulating all of global ocean shipping that relates to the U.S. ports. And yet it's 130 people and $40 million. So, you know, I think that as an agency, it operates lean. But then also, like I said, they have this section 19 authority, this foreign Shipping Practices act, so they're reviewing things and they can take corrective action. But they also are the competition authority for global ocean shipping. They're keeping check to make sure that, that no interest. And, you know, it's an ecosystem, right? The supply chain is an entire ecosystem. So they're making sure that it remains a fair ecosystem from both sides.
[00:06:34] Speaker B: So in terms of a lot of Trump's policies, it's playing a very important role. And as you say, it's relatively lean. So it's not an obvious target. There's not a lot of flesh you can cut away there financially. You're not going to save a lot of money on the federal side, are you?
[00:06:48] Speaker A: That's right. And you know, the other interesting thing that's come out recently, an executive order out of the Trump administration, is for every one new regulation, 10 have to be repealed. And they might be advisories or some sort of guidance document out of the agency. Under Trump 1, his first administration, it was a two for one. So for every one new regulation, two had to get pulled back. Now it's for every one new regulation, 10 have to get pulled back. We're actually waiting for the FMC to create a full regulation on the charge complaints, which was something that Congress told them to do. It's been enacted as an interim charge complaints process, but now they have to actually turn that into a full rulemaking. What we might see is the FMC getting even leaner. So I could probably come up with two or three regulations that might be easy targets to pull back from the fmc. Not saying that they're unnecessary, but perhaps if you need to cut, but 10. I mean, they already tend to prefer a hands off approach to the touchpoints of the industry. And yet here, if they were to move forward with what they've been told under ASRA to do a charge, complaints, formal rulemaking, they're going to have to, they're going to have to find 10 things to remove.
[00:07:59] Speaker B: Presumably that would take up a lot of labor and create a certain degree of new bureaucracy trying to find those 10 that you need to cut, perhaps.
[00:08:07] Speaker A: Right, so then it would be the opposite effect.
[00:08:10] Speaker B: Okay, your second issue, you just mentioned it that you read one to watch for freight buyers was detention and demurrage policy. The FMC is currently still wading through some huge claims around, around detention and demurrage charges from carriers and forwarders during the pandemic. Are we expecting any major changes in policy here or do you want to elaborate a little bit more on what you talked about briefly then?
[00:08:35] Speaker A: Yeah, so the Detention Divergence Rule is a final rule. It came out last May, so we've had about three quarters of a year with it so far. It has really found its way into the industry. Right. We went from no real guidance on what invoices needed to look like to now we have 20 very specific points that all invoices must have. And it all circles around a real clarity toward, you know, the date of the invoice, who it got sent to, the actual time periods that are being assessed, under what rule, under what rate, so that you can actually kind of check the work that goes along with the detention or demurrage invoice that you might be receiving. Part of that was also a direct contractual relationship. So the FMC was trying to clean up who these invoices could actually go to and not sending it around to three or four or five people, not necessarily implying that they were willy nilly sending them around, but perhaps to clean it up so that they would be going to a build party. A very specific either the consignee or the direct contractual relationship, but not both and nobody else. Right. And so that was kind of what the rule ended up saying. So through that direct contractual relationship, we have found that now the FMC's D&D final rule has found itself with a petition against it. And so it's not necessarily necessarily only that issue, but the petition against it is ongoing in court. And so I bring that up to explain that we might see the D and D rule modified. As of right now, the D and D Rule as we all know it, the. The billing practices defining billing practices of detention merge is standing. But it's worth noting that there is a continued petition that's over in the D.C. court of Appeals, federal court of appeals for the D.C. circuit that is reviewing the authority that the FMC had to make this final rule, which, you know, we at least know that it came from Congress. But did they exceed that authority that Congress told them to make this rule? Is it arbitrary and capricious, meaning, like, is it just random that they did this direct contractual relationship? Was that actually what Congress was telling them? All of these rules are things that are kind of going to be determined and fleshed out in this petition against the rule. So that's one to watch right now. It remains. But that might be one that might change depending on what the court decides.
[00:10:50] Speaker B: And obviously that affects a lot of people. Thanks for that, Lauren. Your third most important thing to watch was Panama. You did mention this earlier as well. Chairman Solar's got links to Panama. In fact, he made it a great play of his Panama background to the Senate Committee on Commerce at the end of January. He worked there. His kids were born there. President Trump has been railing against Chinese influence around Panama. We touched on this earlier with, with John and Mark.
Solar also made the point that Panama struggles with corruption. China has been heavily investing around the canal. There are also issues with water levels last year that directly influence US Shippers made this point earlier in the podcast, too. What sort of authority, if any, does the FMC have in relation to the canal or in terms of influence in US Policy on it?
[00:11:39] Speaker A: Yeah. So I didn't realize that now Chairman Sola had such deep roots in Panama. I knew that he had lived in Florida. I knew that he had been into yacht sales. I knew that he was interested and closely monitored the cruise industry. But I didn't know that he had such deep roots in Panama. And so it all started to click to me on what a valuable resource he is from his understanding of the Panama Canal and the Panama region generally.
[00:12:08] Speaker B: And it started to explain his appointment to a degree.
[00:12:12] Speaker A: I didn't know who. Nobody knew who the chairmanship was going to go to. Right. But it started to, you know, after the decision has been made, then everything makes sense. Right. So. But they put that out in his announcement. He's, he's very humble about his, his really impressive resume that he has. I mean, he's done counterintelligence he's done all sorts of things, but Panama was one thing that I didn't realize. He had such a depth there. And so, like I said, the Section 19 of the Merchant Marine act of 1920 and this Foreign Shipping Practices act are very important authorities that I see might come into play in the Panama discussion and that all of a sudden makes the FMC relevant in the Panama conversation. So we have a lot of conversation internationally, right, Talking about this Panama Neutrality Treaty. But another hook, should they need one, might be this FMC authority given from Congress, right. So we have the Foreign Shipping practices Act of 1988, which has investigative authority so that the FMC can examine foreign laws, regulations and practices that unfairly impact US Shipping, and they can counteract those measures with restricting foreign carrier access to US Ports, suspending tariff service contracts or agreements filed with the FMC, or imposing up to a million dollars per voyage on any Panamanian flagged vessel. So that's just under the Foreign Shipping Practices act. The Section 19 authority gives an ability to also correct unfavorable shipping, but it's regulating intermodal movements, terminal operations, cargo solicitation. They can take action against discriminatory practices on specific trade routes or just generally in trade, unfavorable shipping conditions generally. And so why does this matter for Panama? I mean, as you, as you probably know, almost 20% of the world's fleet are Panamanian flagged vessels. And so it'll be interesting to see, does it apply to just strictly Panamanian flagged vessel? Like could the US Then say any vessel that has a Panama flag, you're no longer welcome here? I mean, maybe there's an argument that if, if the answer is at least a maybe, if not a full yes, that's very troubling for the entire world's fleet. And so that's part of it. Right. If, if the US or if the FMC determines that there might be unfavorable shipping conditions because of whatever it is, maybe there's preference being given, maybe there's, you know, the potential of a blocking of the canal, any sort of thing that is unfavorable conditions. If the FMC finds it through this investigative authority, the FMC could turn away. Panamanian vessels could invoice, could assess a million dollars per. Per voyage. These are major things that now it all kind of pieces together a little bit more.
[00:14:57] Speaker B: Yeah, I think you'd be having ship registries in the Marshall Islands and Liberia rubbing their hands with glee if that some of that did transpire. Thanks for that. Yeah, One of the Things I was going to mention solar actually, as a captain has transited the Panama Canal over 100 times, so he definitely knows the area. Your fourth thing to watch was container shipping alliance changes. We touched on the operational implications around these changes earlier in this podcast. The FMC has been scrutinizing these new alliances, the premier alliance, the Gemini, cooperation between Maersk and Hapag Lloyd. When I've talked to people, the FMC's role in clearing this on a competition level, it's generally being seen as rubber stamping. But there's a bit more scrutiny than that, isn't there?
[00:15:45] Speaker A: That's right. And the thing that really gets misunderstood here is the FMC doesn't actually approve these. They just simply don't stop them. It's a fine definitional thing, a fine line between what's the difference? But they don't approve them. In order for them, for the FMC to stop agreements filed with them, they would have to file a lawsuit against it. So and that would have to be a worthy lawsuit because like I said, they only have 120, 130 employees. They're certainly not all attorneys. They probably only have about 10, maybe 15 attorneys that have ACT that they have access to that could weigh in and be part of filing an injunction to stop this agreement. So it's got to be really worth the manpower to do it. But the other thing is they actually have to have a really good argument for why they would be stopping it. So it kind of creates this presumption of business, private businesses allowed to do private business activity unless it will be a significant monopolistic effect that would then be detrimental to overall global ocean shipping, at least as it relates to the US ports. So that's one thing that I think is really important to note is that the FMC also then continues to monitor it and at any point can file that lawsuit against the agreement. But that first initial review is a 45 day review. Then they can ask. It's only 45 days. I mean, you know, we've already talked about this is a very lean agency. It's probably almost half economists. So they really are a competition authority. They're reviewing very thoroughly the market impact that these agreements might have. But they only have 45 days to do that. They do have an opportunity to extend that time if they have additional questions. So they have a rfai, which is request for Additional Information. They then have, you know, a few weeks to or expeditiously that whoever they're asking, whoever filed the agreement responds to those questions. Then the FMC has an additional 45 days, but Max, we're looking at really 90 days for them to review these major vectors. Vessel sharing agreements, which is what the alliances really are. They're vessel sharing. They're not rate sharing. They're not like mergers. They really are kind of an operational intention of like two or three vessels are going the same direction on the same route. We might as well share the space. They're still competing for your, your cargo, but they really are just trying to streamline so that now they can perhaps through these alliances, move some of these other vessels into smaller markets so that instead of three large market trade lanes, they're then scooting maybe one or two vessels over into smaller ports or smaller markets. So it ultimately gives you a little bit more flexibility. The fmc, I think, understands that, but they want to make sure that no alliance, none of these vessel sharing agreements create too much of a market imbalance, too much of a monopolistic behavior. The other thing to note, it's not the entire fleet that's part of these agreements. Right. These vessel sharing agreements, these, these alliances are not the entire fleet. So when you start to hear about people say, well, this company has 30 or 40% market share anyways, and now they're pairing with another 15%. It's not entirely true. Right. They have vessels that are dedicated to that agreement. It's not the entire fleet. Yeah.
[00:18:58] Speaker B: They still operate independently or with all the carriers in other markets. How does any of this tie in with FMC oversight of minimum quantity commitments, MQCs in service contracts? Can you explain that a little bit more?
[00:19:13] Speaker A: Yeah. So this is an area of the FMC that I think we're going to be finally getting some answers on. A lot of the beneficial cargo owners and shippers generally have been watching because this is what service contracts are, at least in part based on. Right. You get a minimum quantity commitment, and then you get a more favorable rate. And so those service contracts are confidentially filed with the fmc. But there's a little bit of a question over the enforceability of that minimum quantity commitment. If you have 8,000 TEUs that have, you're committing over the course of an entire year. And so that's it. You have a year. Are they all for December? Are they for March and December? Are they. Do you get to the end of the year and you now want all 8000 TEUs move the last week of December? There's not that definite term associated with it. And so we've had some instances from, from the, the Cases that have been filed about this asking, well, we got pushed to the spot rate market, but we already have this minimum quantity commitment. Can what's the enforceability here? Is this reasonable or unreasonable? Is this something that the Shipping act allows or doesn't allow? We really haven't had a lot of clarity through case law through the years on. So this will be a new line of authority or specific case law that comes out of the FMC on what is the enforceability of a minimum quantity commitment. Pure contract law. The FMC doesn't weigh in on because the FMC's authority is under the Shipping Act. But if we have minimum quantity commitments in these service contracts, that's something that the FMC probably could weigh in on. And I think that we're going to see that come through some of the case law, hopefully even this year. Right.
[00:20:55] Speaker B: As early as that. Okay, one to watch. Fifth on your watch list is the Ships Act. The full title is the Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act. I got through it. I didn't know if I would manage that with one breath for container shipping. The way I was looking, at least the key provider seemed to be that there had to be more capacity on US Flagship service service in the US Mainly from China. We were discussing before we started this conversation though that you think its importance lies more in the fact that it makes a firm link between maritime and national security.
[00:21:32] Speaker A: That's right. So when this bill was initially being communicated to the kind of maritime community, it was the Kelly Waltz bill. So it was Mark Kelly, Senator Mark Kelly of Arizona and Congressman Waltz from Florida. Congressman Waltz has now been tapped to be the national security advisor. So we go from an already maritime focused congressman to now he's moving over into national security advisor role under the Trump administration. We also see in this bill that's now the Ships act officially that it has a focus on the importance of shipbuilding, the importance of beefing up our maritime presence for the purpose of national security. Because the theme and it seems like there's themes running through different administration certainly, but certainly this one there seems to be a theme of maritime security is national security. And so I think that we're going to see the focus of this next administration in the maritime world. One I already love that maritime has been brought up in conversation so much because how often does maritime get this, this much play? We saw, you know, Covid congestion years. There was a lot of conversation about supply chain generally, but we kind of fell and we've never had it so good.
[00:22:45] Speaker B: Lauren.
[00:22:46] Speaker A: I Know, like it was even to the point where it was well, even bad presses is press. So like we can talk about supply chain.
[00:22:54] Speaker B: Exactly, exactly.
[00:22:55] Speaker A: Yeah, but, but, yeah, but with that, with the maritime security, I think that that's something that we'll see. I think that we're going to see a return to. We still have some shipbuilders in the U.S. right. And we've been supplying our military vessels, have been filling those, those shipbuilding facilities. I think that we're going to see a more of a focus toward beefing that up, which also means perhaps increasing our US Flag commercial fleet. I wouldn't be surprised if we actually grew our fleet so that we became the US Became a true competitor in the global ocean shipping market. I mean, wouldn't that be wild to go from, you know, years ago we actually were. And then we've dropped off. I think we have less than 100 vessels, maybe even closer to 50 or 60 vessels US flagged. And then to then, then return to be an actual competing US Flag commercial industry or player would would be wild. But perhaps we can't. I don't think we can do it in four years.
[00:23:52] Speaker B: Is it about having US Flagships or is about having US Shipbuilding capacity?
[00:23:57] Speaker A: I think the vote one in the same. Right. Because I think that the US Shipbuilding capacity has to be heavily restarted or heavily supported and built up. And then from there I think we gain control of the, potentially the military vessels. And I think that's kind of been the focus. Right. Is make sure that we have control of our military vessels, but then also our, our maritime infrastructure. There's been a lot of talk about cranes and them coming from a specific provider in China, which is ZPMC. That's right, yep. ZPMC. That was the intention behind some of those Section 301 tariffs and some of the conversations about well, maybe we need to make sure that the infrastructure that we are purchasing, we have control over that. And so I think that we're there. Actually there was almost a 25% tariff put on cranes coming in from China with about 30 or 60 days notice, which as you know, you can't build a crane in that amount of time. So certainly all the ports that were that had those on orders were like those are tens of twenties of millions of dollars. And then now you slap 25% tariff on that. That would have been a big deal. Luckily that was delayed, but the intention still remains. That was under the Biden administration and I don't think we're going to see a change there now under The Trump administration where I think we're going to see this emphasis on us built for the purpose of military or security purposes to kind of gain that control.
[00:25:21] Speaker B: I actually went and visited Zen PMC and tried to write an article. What they were allowed to say to me was, I don't know if you would say censored. I thought there was a language barrier. I got no information. It was an abortive trip, an abortive interview. Cardi Did I even write it up? Anyway, yeah, my claim to fame. I interviewed ZPMC finally. Lauren, we've had Commissioner Bensel, former Commissioner Benzel, on this podcast previously, who was the driving force in the FMC's efforts to, to promote global container shipping, digital standardization efforts. Is someone going to pick that ball off and run with it?
[00:26:00] Speaker A: You know, I think so. So it was the Maritime Transportation Data Initiative, the MTDI that former Commissioner Bensa was really working on. And I really applaud his ability to facilitate the conversation. And I think that that was the best thing that could have been done. You know, I think that the fmc, if you go back, you can actually look at the YouTube page of the FMC, the Federal Maritime Commission, and he has all of these. I think it was 18 different interviews of 18 different sectors of the supply chain asking them, what data do you have? What data do you need, what data, how do you share your data? Just kind of conversations around data data dissemination and the standards of data. And through there he created a report that really kind of looked at all these different areas of the supply chain ecosystem and where it needs to move forward. He certainly didn't, he didn't go after any platforms or any of that. But he said the importance, importance of just all speaking the same language and having that baseline understanding so similar to how credit cards can be used all around the world or email can be used all around without having everybody on Gmail or everybody on Yahoo. He actually pointed out that the Digital Container Shipping association was already doing that. And that's something that I think is important to watch. We've had a lot of different digitalization efforts through the years, but they all seem to have been kind of platform related. This is an effort that really is just kind of a general neutral starting point so that everybody can build on top of it, but at least we're all speaking the same language to begin with.
[00:27:36] Speaker B: Well, I had a lot of respect for Commissioner Benl for trying to do that because people have been trying to do that for a few decades now. No one ever wants to share the data. Thank you so much for your time today. Lauren Began, the maritime lawyer and host of the very, very excellent By Land and By Sea podcast, which you all should check out. Thanks so much for joining me today on the freightfires Club.
[00:27:57] Speaker A: Thank you very much for having me. This was fun.
[00:28:01] Speaker B: Thanks to Demerco Express Group for making today's episode possible. I'll be back next week looking at everything to do with Trans Pacific fording with Democo's Kathy Liu. And we'll be joined by the legend of container shipping that is former Yang Ming and Evergreen Leader in Chief Bronson C. All of this ahead of TPM in Long Beach. Hopefully we'll see you there. As ever, big thanks to my editors Karen Ball and Tom Matthews. Until next time, thank you for listening to the Freight Buyers Club podcast.
